1. 3.5.1 and 3.5.2 unit content Students should be able to:
Assess the factors which influence the demand and supply of labour (for a particular occupation)
Explain that demand for labour is a derived demand
Evaluate market failure in labour markets: the geographical and occupational mobility and immobility of labour

2. Demand and supply in the labour market
Who supplies labour and who demands labour?
The demand for labour is derived demand: what does this mean?
When does demand for labour increase?
When does demand for labour fall?

3. Labour and capital What is the link between labour and capital?
They are _________
A firm may be able to replace ________ with _________
e.g.

4. Factors affecting supply of labour

5. Factors affecting supply of labour cont.

6. Romania France Denmark Japan
Population growth
Romania
France
Denmark
Japan

7. Market failure and the supply of labour
What is market failure?
It can result from the inability of workers to easily ______ between jobs.
This can be due to:
_______________ immobility

8. Geographical and occupational immobility
Geographical immobility: refers to ________ being unable to move to different ________ to seek and find work. This may be due to social reasons, such as not wanting to move away from________. It may also be due to the ________ of travel or accommodation
Occupational immobility: refers to workers being _______ to move between jobs as they lack the appropriate ________ or training. As an economy shifts from having a manufacturing base to a service-sector base, many manufacturing workers find it difficult to transfer to ______ in the service sector as they lack the required skills.
cost, family, jobs, places, skills, unable, workers

9. 3.5.3 unit content Students should be able to:
Analyse diagrammatically labour market equilibrium
Explain current labour market issues
Analyse government intervention in the labour market: maximum and minimum wages; public sector wage setting and policies to tackle labour market immobility
Evaluate the significance of the elasticity of demand for labour and the elasticity of supply of labour

10. The price of labour The price of labour is the ______ rate.
High wages means _________ exceeds demand and hence we have _____________
In a free market, workers will have to accept lower wages or not have a job. So the wage rate will tend to ______ to the market clearing rate.
If wages are too low then demand will be higher than supply leading to a labour ________. Workers won’t work if they are paid too little so firms will have to pay ______ as an incentive to work. Thus the wage rate will increase to the market clearing rate.

11. Draw a diagram showing demand and supply for clothing workers

12. Unemployment and underemployment
What is unemployment?
What is underemployment?

13. Current labour market issues

14. The minimum wage What is the minimum wage (definition)?
Microeconomics Topic 2c: The Allocation of Resources - demand and supply in a market
The minimum wage
What is the minimum wage (definition)?
Is it a price floor or a price ceiling?
To have any effect the minimum wage has to be set _______ the equilibrium price.
2016: £______ (25 and over, the National Living Wage); workers age 24 or younger receive National Minimum Wage
2014 rates £6.50 for over 21, £3.79 for 16 – 18 year olds, £2.73 for apprentices

15. NOTE: The minimum wage v the living wage
Microeconomics Topic 2c: The Allocation of Resources - demand and supply in a market
NOTE: The minimum wage v the living wage
The UK government call the wage for people aged 25 or over “the National Living Wage” and the wage for those under 25 is “the Minimum Wage”.
The Living Wage Foundation have calculated different rates which they say are needed to live on in the UK: £9.75 in London and £8.45 outside London.

16. Draw a diagram showing the minimum wage

17. Draw a diagram showing an increase in the minimum wage

18. What are the arguments for the minimum wage?

19. What are the arguments against the minimum wage?
Microeconomics Topic 2c: The Allocation of Resources - demand and supply in a market
What are the arguments against the minimum wage?

20. Does the minimum wage increase employment?
Microeconomics Topic 2c: The Allocation of Resources - demand and supply in a market
Does the minimum wage increase employment?
Keynesian argument: higher wages _______ disposable income of lower-paid employees who have a high ___________ to consume. They will increase their spending and this will increase __________ for goods and services (circular flow of _________ and spending).
Efficiency wage argument: rising _______ levels for low-paid employees may have a positive effect on their productivity. It may also encourage firms to ________ in training.
NOTE: no evidence that the min wage caused extra unemployment during the 2008 recession.
demand, income, increase, invest, pay, propensity

21. Microeconomics Topic 2c: The Allocation of Resources - demand and supply in a market
Maximum wages
Most developed countries have a minimum wage but maximum wages are rare.
What happened in the 1970s?
What has happened recently (Chief Executive pay)?
What would happen if a maximum wage was set below the free market wage?

22. Elasticity of demand for labour
Microeconomics Topic 2c: The Allocation of Resources - demand and supply in a market
Elasticity of demand for labour
What is elasticity of demand for labour?
What happens if demand for labour is elastic, and wage rates increase? Wage rates decrease?
When about when elasticity of demand for labour is inelastic?

23. What influences the elasticity of demand for labour?
Microeconomics Topic 2c: The Allocation of Resources - demand and supply in a market
What influences the elasticity of demand for labour?
The wage elasticity of demand for labour depends on a number of factors:

24. Elasticity of supply of labour
Microeconomics Topic 2c: The Allocation of Resources - demand and supply in a market
Elasticity of supply of labour
What is the elasticity of labour supply?
In low-skilled occupations, is labour supply elastic or inelastic?
Where jobs require specific skills, training or qualifications, is the labour supply more elastic or more inelastic?

25. Elasticity and the minimum wage
Microeconomics Topic 2c: The Allocation of Resources - demand and supply in a market
Elasticity and the minimum wage
The impact of a minimum wage on employment levels depends in part on the elasticity of demand and supply of labour in different industries.
If demand for labour is inelastic then an increase in the minimum wage (and hence a contraction in employment) is likely to be ____________

26. Public sector wage setting
Microeconomics Topic 2c: The Allocation of Resources - demand and supply in a market
Public sector wage setting
In September 2016, _____ million people were employed in the UK.
Total UK public sector employment was ____ million, this was 12,000 higher than at June 2016 and 10,000 lower than at September 2015
Since public sector unions in the UK are relatively strong/weak, the government can use its oligopoly/monopsony power to set wage rates.
Between 2010 and 2015 public sector workers had a wage ______

27. Low public sector wages
Microeconomics Topic 2c: The Allocation of Resources - demand and supply in a market
Low public sector wages
In the short term, what do low public sector wages do to private sector wages?
What are private sector workers likely to do (i.e. where will they work)?
So labour supply remains stable.
What happens in the public sector in the long term?
In the long term, the wages of public and private sector workers rise by a similar proportion.

28. Microeconomics Topic 2c: The Allocation of Resources - demand and supply in a market
Government and wages
Through public sector wage setting, the government can affect the labour market.
Policies to tackle labour market immobility:

29. Microeconomics Topic 2c: The Allocation of Resources - demand and supply in a market
Multiple choice
Which of the following is most likely to increase the geographical mobility of labour in the UK?
An increase in the average age of the workforce
An increase in rail and bus fares
A decrease in regional house price differentials
A decrease in the proportion of skilled workers in the labour force

30. Microeconomics Topic 2c: The Allocation of Resources - demand and supply in a market
Multiple choice
The most likely consequence of an increase in the division of labour in the construction of new houses is an increase in:
Output per unit of labour
The price pf houses
The production cost of each house
The range of skills required by each worker

31. Microeconomics Topic 2c: The Allocation of Resources - demand and supply in a market
Multiple choice
In September 2013, clothing workers in Bangladesh demanded an increase in the industry minimum wage from $38 to $100 a month. Such an increase in the minimum wage is likely to:
Affect the level of employment among clothing workers
Decrease the supply of labour in the clothing industry
Increase the demand for labour in the clothing industry
Decrease the price of clothing in shops

32. Microeconomics Topic 2c: The Allocation of Resources - demand and supply in a market
Multiple choice